He reached that conclusion by conducting the following analysis: First, he looked at 43 M&A transactions involving publicly held software stocks over the last three years to look at the average valuations companies were receiving. Then he looked at the remaining software stocks, screening for names that could be acquired at a reasonable premium given what a reasonable buyer might pay based in historic norms.
He found eight companies that would be valued at or below historic valuations on an enterprise value/revenue or enterprise value/maintenance revenue basis after applying a 25% acquisition premium. Materne emphasizes that he is not saying all of these companies are going to get acquired; he’s just saying that the match appears to work. That said, his list includes:
Borland (BORL) Novell (NOVL) Sybase (SY) Business Objects (BOBJ) SPSS (SPSS) Quest Software (QSFT) Compuware (CPWR) BEA Systems (BEAS)
That actually feels like kind of a thin list; Materne notes that both Novell and Borland would be tough to buy given that they operate multiple business lines, which he says may make them somewhat less attractive to strategic buyers. Materne notes that the firm has Buy ratings on NOVL, QSFT, CPWR and SPSS. I’d note that most of these companies are frequently mentioned as potential targets.
Earlier today, I noted that BEA Systems was downgraded by Credit Suisse specifically because the stock had gotten over-heated on takeover speculation.
Borland is off 1 cent at $5.60. Novell is up 11 cents at $7.65. Sybase is up 1 cent at $23.02. Business Objects is up 34 cents at $39. SPSS is off 2 cents at $43.38. Quest is up 3 cents at $17.14. Compuware is up 12 cents at $10.14. BEA is down 2 cents at $11.75.